Unbelievable Budget Numbers

In all fairness to the President, no Federal Budget is ever honest.  At least that has been true for as long as I have been following them.  A President has to try to reconcile too many contrary interests, with many interest groups holding self-contradictory views of the world, to achieve a consensus based on mutual understanding.  Likewise, almost all budgets over the last 30 years have involved “rosy scenarios.”  That is, the budget is made to look more responsible by assuming irrationally optimistic assumptions about revenue.  Finally, you always get some slogan meant to imply a new sobriety (remember Al Gore’s Social Security Lock Box?), which turns out to mean nothing at all.

Well, if you were expecting change from the Obama Administration, you are likely to get it.  But not in any of the above.  What is new is the astounding size of the numbers involved, and the corresponding gap between rhetoric and reality.  Let’s look at some of the numbers, courtesy of the Obama Administration:

Budget totals (billions)	2008	2009	2010	2011	2012
Receipts	2,524	2,186	2,381	2,713	3,081
Outlays	2,983	3,938	3,552	3,625	3,662
Deficit	459	1,752	1,771	912	581
Receipts as % GDP	17.7%	15.4%	16.2%	17.5%	18.7%
Outlays as % GDP	21.0%	27.7%	24.1%	23.4%	22.2%
Deficit	3.2%	12.3%	8%	5.9%	3.5%

 

Okay.  That means that President Obama is planning on running a deficit of nearly two trillion dollars this year and next year.  After that, of course, he will bring our fiscal house into order.  But look at that deficit as a percentage of GDP for this year.  Twelve point three percent of all domestically produced wealth is staggering.  Only during WWII did we ever run deficits higher than that.  It’s twice as high as the largest peacetime deficit on record (1983). 

Of course it makes sense to run such a deficit if we are facing a real economic crisis and if the spending is a remedy.  The Obama Administration isn’t wondering about that.  It is assuming that.  Or maybe the White House believes there really isn’t any crisis, and that the economy will recover for the same reason that it always did in the past.  Either way, it needs to see economic growth return very fast very soon.  The numbers above assume that the GDP will grow 3% in 2010.  That’s about twice as much growth as anyone else projects.  It assumes growth rates of more than 5 and 6% in 2011 and 2012.  That would be impressive.  

Of course what’s really going on has nothing to do with the “return to responsibility rhetoric of the President’s speech.  Obama and his Congress are gambling that this is a typical recession, and that the economy will come roaring back in proportion to its depth.  He has been fear mongering to justify an explosion in spending.  That might work for the long run if he can build large constituencies that dependent on future spending. 

But what if the recession doesn’t gently end, but goes on for another year or two?  Then the numbers above will look rosy indeed.  Sooner or later big deficits will have to be paid for, either by raising taxes through the roof or by inflation.  Either way, that means redirecting resources away from productive sectors of the economy toward favored constituencies of government.  That will retard economic growth, and thus make the deficits worse.  The Chinese curse has come true for us: may you live in interesting times.